WASHINGTON — Massachusetts regulators fined Morgan Stanley $2 million Friday for failing to flag certain trades by the former CEO of First Republic Bank, who offloaded shares in the regional bank during the lead-up to its 2023 collapse.
"Morgan Stanley's own compliance manual prohibits its agents from buying or selling securities if they believe their client is trading while in possession of material non-public information,"
The Massachusetts office — which opened an investigation into potential insider trading at First Republic after the stock sales — stated that Morgan Stanley employees failed to identify the executive's relationship with First Republic.
"When employees did review trades, they did not conduct meaningful reviews," the release stated. "In reviewing potential insider trading alerts, monitoring officers incorrectly concluded, after only one minute, that there was no relationship between the customer and First Republic, the complaint states — something that could have been easily identified through a straightforward internet search."
The former First Republic executive — which
The Massachusetts Securities Division did not name Herbert, instead referring only to a former First Republic CEO. It said the penalties against Morgan Stanley stemmed from an investigation into trading by a First Republic executive but did not indicate whether the executive is currently under investigation.
Herbert's spokesperson declined to comment on the settlement.
First Republic failed on May 1, 2023, following a monthslong bleed of deposits. JPMorgan Chase immediately acquired much of the San Francisco-based bank from the Federal Deposit Insurance Corp.
According to the Massachusetts regulators, Morgan Stanley had no specific policies in place to address transactions related to insiders at companies that report to the FDIC, rather than the Securities and Exchange Commission.
"We are pleased to have resolved this matter," a Morgan Stanley spokesperson said.
Despite the executive's public relationship with First Republic, Morgan Stanley also reportedly removed a notation identifying him as affiliated with the bank, which circumvented several internal compliance checks.
The Massachusetts Securities Division said it found off-channel communications by the Morgan Stanley managing director who serviced the First Republic CEO's accounts, which violated regulatory requirements for record-keeping in the financial industry. Morgan Stanley was
As part of the settlement, Morgan Stanley must review its internal rules related to the handling of trades for senior officers of publicly traded companies. The bank is also required to give its Massachusetts-based brokers a refresher on record-keeping and insider trading prevention.
